Page 19 - FSUOGM Week 43

FSUOGM NEWS IN BRIEF FSUOGM

Shymkent-based PetroKazakhstan Oil Issuer Default Rating (IDR) at 'B' with a Stable 2H20. The new, global production capacity
Products accounted for 44.9% of petrol output Outlook. Petkim is 51%-owned by SOCAR of PE is expected to increase in 2020 and
in Kazakhstan, or 1.3mn tonnes. Turkey Enerji, which in turn is 87%-owned by 2021, although a recovery in demand in
Pavlodar and Atyrau regions are the other Azerbaijan’s national oil company SOCAR and 2021 can improve supply/demand balance.”
two petrol producers in the country. They 13% by Goldman Sachs International. The rating agency observed high plant
produced 858,700 tonnes and 688,700 tonnes, The ratings agency said: “The Stable use despite the coronavirus pandemic. It
respectively, in the eight-month period. Outlook reflects Fitch's expectations of said: “Petkim maintained average use of
positive free cash flow (FCF) generation its capacity at 95% in 1H20 and operations
and moderate deleveraging over 2020- at its facilities have not been significantly
Ilham Aliyev: "The official 2023. We forecast funds from operations affected by the pandemic. Weaker demand
for plastics in domestic market was partly
(FFO) net leverage to reduce to 3.5x by
opening of TAP may take 2023, supported by a petrochemicals sector counterbalanced by an increase in export
recovery, and after payment of the last
of about 5%. Sales volumes were modestly
several weeks" USD240 million instalment in 2021 for the affected in 2Q20, with less than a 4%
reduction yoy.”
stake acquisition in SOCAR Turkey Aegean
Azerbaijan’s President Ilham Aliyev has said Refinery (STAR).” Assessing the impact of the severe
that the opening of the Trans-Adriatic Pipeline It added: “The current, weaker-than- depreciation of the Turkish lira, Fitch said
(TAP) is on schedule but will take longer to previously-expected credit metrics are it was manageable, contending: “Petkim
open due to the ongoing conflict in Nagorno- driven by low petrochemical prices has almost 90% of its plant production
Karabakh. reducing earnings and higher capex plan, costs, or 80%-85% of total cash costs,
Azerbaijan continues to make strides which should maintain FFO net leverage denominated in US dollars because its
in recapturing lost cities and towns under above our negative sensitivity of 4x in 2020- major feedstock, naphtha, is purchased
Armenian occupation for more than 30 2021.” at US dollar price. Simultaneously, the
years, but fears are growing that Armenia Looking at key rating drivers, Fitch majority of sales is directly denominated
will strike out at the Azerbaijan’s pipelines looked at a “deleverage from 2021”, noting: in US dollar and euros, or indirectly driven
connecting to Georgia as part of TAP. “The petrochemical market environment by lira price indexation to the global
"Everything about the Trans-Adriatic was already challenging in 2019, which US dollar benchmarks. This supports
Pipeline (TAP) is on schedule," Aliyev said affected the company's credit metrics. We Petkim's EBITDA during the periods of
to Nikkei newspaper. forecast FFO net leverage to remain close lira devaluation, thus largely offsetting the
"The official opening of TAP is probably to 5x in 2020, but expect a downward trend company's hard-currency debt revaluation.
not a matter of months, but a few weeks. from 2021 with a reduction to 3.5x by 2023. “Foreign exchange volatility could also
Everything is ready on the belt. The historic Earnings in 2020 will be affected by lower have indirect implications, such as weaker
pipeline from Baku to Europe has been demand and we expect the post-pandemic domestic demand, although Petkim could
completed, "the President said. recovery in 2021 to be offset by [the last re-route its products to export markets.”
Azerbaijan’s Baku-Tbilisi-Ceyhan instalment for the purchase of an 18% The STAR refinery launch was adding to
pipeline, although pumping 600,000 barrels interest in the STAR Refinery]. cost savings for Petkim, Fitch said, adding:
per day on average, has been important “In order to cushion excessive growth “STAR Refinery now operates at almost
for Europe and Israel because of its close in leverage, Petkim suspended payments full capacity. In late 2018 Petkim's ultimate
distance and usefulness during moments of of dividends in 2019 and in 2020. We don't corporate parent, State Oil Company of
tension in the Middle East. expect distributions to shareholders over the Azerbaijan Republic (SOCAR; BB+/
Italy and other European countries the rating horizon which supports the Negative), launched a new STAR Refinery
are expected to be the first buyers of forecast positive FCF over 2020-2023.” located next to Petkim's plants in Turkey,
Azerbaijan’s gas exports to Europe. Fitch also examined how low with an annual oil refinery capacity of 10
Tap carries gas from Azerbaijan’s Shah petrochemical feedstock naphtha prices million tonnes (mt).
Deniz field in the Caspian Sea through to support spreads, saying: “Petkim's earning
Europe. reflects the spread of its products to “As a result, Petkim could expect around
naphtha, its major feedstock. Spread for USD40 million annual savings on logistic
thermoplastics, a segment representing costs after the full ramp-up of STAR
Turkish petrochemical nearly half of Petkim's non-trading revenue, Refinery. The refinery can supply up to
1.6mt of naphtha and 270 thousand tonnes
improved in 2Q20 by 12% from 1Q20 and
producer Petkim affirmed at helped to mitigate a decline in market of mixed xylene or reformate feedstock to
Petkim annually.”
prices.
‘B’ by Fitch polyethylene (PE; 60%-65% of Petkim's
“The pressure from oversupply in
Fitch Ratings late on October 19 affirmed sole plastics sales) and the recovery in oil
major Turkish petrochemical producer Petkim prices could, however, slow the pace of
Petrokimya Holdings (Petkim’s) Long-Term improvements in Petkim's earnings in

Week 43 28•October•2020 www. NEWSBASE .com P19